EXPO Legal Panel

The battle against sin/pole taxes

Top industry attorneys and lobbyists discuss strategies to fight harmful taxes and legislation!

Benjamin Franklin said only two things in life are certain: death and taxes. And any adult nightclub operator will confirm he’s paid more than his share of the latter. And now, with the spread of per-customer “pole taxes,” clubs are facing additional jeopardy and expense. The Expo 2015 Legal Panel focused on this issue, and featured two top First Amendment attorneys with national practices, Daniel Aaronson and moderator Brad Shafer, along with Jeff Levy, executive director of three adult club associations that have defeated 29 separate legal challenges. ED Associate Publisher Dave Manack also participated in the session by directing questions toward the panelists.

Brad Shafer

Moderator Shafer started the session by underlining the seriousness of the two issues. Shafer explained that seven or eight years ago, states began taxing adult clubs with pole taxes, in addition to the other taxes the clubs already pay. Several states have currently enacted pole taxes. And Texas and other states are seizing clubs, due to unpaid pole taxes. If these taxes are upheld, other states will certainly follow suit. States tax clubs because they’re easy targets; scoring politicians easy points with little threat of the media or public coming to the clubs’ defense. They use the convenient but untrue assertion that clubs force women into the illegal sex trade to tie clubs to human-trafficking. Shafer noted that, regrettably, all challenges to adult specific pole taxes thus far have failed because of the inability to litigate them in federal court, with a judge less affected by political pressure than one in state court. Due to a legal principle called comity, states and nations recognize each other’s laws, making state taxes unchallengeable in federal court. Utah, Illinois and Texas have adult-entertainment-specific pole taxes. Texas’ is also specific to liquor clubs. Illinois’ pole tax hasn’t yet been challenged. Nevada taxes all live entertainment ... but through 26 exceptions, removes everything but adult nightclubs. Shafer litigated a facial (as written) challenge of the Nevada tax in state court and lost that case is in the state Supreme Court. He is now litigating an “as applied” challenge of that tax in state court.

Shafer also mentioned a recent Michigan human-trafficking related pole tax that ACE of Michigan and its partner association, the Michigan Licensed Beverage Association, were successful in stopping through strong, effective lobbying. Shafer reported that there may be some hope on pole taxes, based on a positive new U.S. Supreme Court decision, Reed et al. v. Town of Gilbert, Arizona et al. related to the content of expression, which may make pole taxes, specifically targeted to adult businesses easier to challenge. “We’re seeing around the country federal appeal courts now acknowledging that the Reed case has been really a sea change (a major transformation or alteration) with laws involving the content of expression in general and whether they’re constitutional,” Shafer explained. Shafer said he and the other First Amendment attorneys representing adult clubs are hopeful that the Reed case will give them the ammunition with the courts that that’s the argument that should be made with content based restrictions against adult businesses, that they should use a compelling governmental interest standard, and as such, subject to strict scrutiny. And that should include pole tax cases since most say they’re only taxing adult entertainment.

Jeff Levy

Jeff Levy, executive director of state adult club associations in New York, New Jersey and Pennsylvania detailed challenges those states have met. The three associations have defeated seven separate pole taxes. Levy attributes these victories to strong infrastructures of members and professionals working together and organized lobbying. He explained that killing a tax before implementation is much easier than trying to fight a law. Levy explained that without a strong state adult club association to fight a pole tax, “You will fail.” Levy does bill tracking to catch harmful new legislation. When he discovers a new bill, he consults association attorney Daniel Aaronson, who dissects the bill, telling him everything wrong with it. Levy then goes to the chairperson of the committee originating the bill, controls the bill’s activity, before it can come up for a vote, rather than the bill’s sponsor,

“who doesn’t like us.” Levy noted that he is “always respectful, not confrontational with committee chairs.” He points out the bill’s possible unintended negative consequences along with the unconstitutionality of certain provisions. He also speaks with leadership in the two legislative chambers. “Be prepared, polite and well dressed,” Levy suggested. “Start a dialogue, find out what interests them. Levy suggested our biggest problem is the Religious Right. “They’re taking our house down, brick by brick. They vote, they contribute, they’re motivated.”

Daniel Aaronson

Although Daniel Aaronson is a First Amendment attorney and litigator who would profit more by litigating these types of legislation, he agreed with everything Levy said. They’ve worked together in the three states and share a strategy.Aaronson noted that in the Florida legislature’s last session, a proposed bill mandated a $10 per customer pole tax, along with customer registration. “It would have put most Florida clubs out of business and destroyed the state’s industry,” noted Aaronson.Aaronson, who represents Florida SEA, the state’s adult club association as an attorney, on his own, spoke with the bill’s sponsor, who he’d previously met at political functions. She told him the bill was in response to human trafficking. He explained the industry’s proactivity on trafficking and provided material proving the point. SEA’s lobbyist also met with other legislators to share SEA’s anti-trafficking message.“Before we knew it, we were told the bill was withdrawn,” explained Aaronson. “That is getting politically involved.”How did Aaronson get to the point of having access to the bill’s author? Over four or five years, he’d attended numerous political functions and made contributions. “By doing that, I get to shake hands with and get to know people and be known. Most important, I get access. Not the promise they’ll do anything but the ability to talk to somebody you need to talk to, when you need it.” After a political event he attended, Aaronson ended up giving the gubernatorial candidate (Charlie Crist) and his wife a last-minute ride to the airport. When they asked what he did, Aaronson explained he represents the adult entertainment industry. “During a 40-minute conversation, I was able to humanize the industry to them; we became business people to them, rather than those who stereotypically rape and pillage,” explained Aaronson.“I can’t tell you what he would have done for the industry if elected, but I can tell you he knew more about the industry from that ride than he probably would have learned in any other manner. And that only happened because I got involved in the political process.”Aaronson explained that, on the state level, politics resembles a small high school. On the local level, more like a small grade school. “I can’t promise politicians will vote your way when you host fundraisers and contribute, but they will answer your call and listen to what you have to say,” Aaronson added. “And they’d rather go with you than against you unless it’s political suicide.”Aaronson explained that it’s easier to be instrumental on the local level where a minuscule amount of money will swing an election, compared to a state or national race. Despite your own personal politics, support the political party likely to win the local race. “It is much easier to stop legislation in committee, before it becomes the snowball rolling down the hill or at the bottom of the hill,” noted Aaronson. “As an insider, you’ll know when legislation is about to start. Once it’s highly publicized and gotten grass roots support, it’s too late; nobody can stop it. Just being a state chapter member or supporting a lobbyist isn’t enough. Get involved individually. You never know when you’ll shake hands with somebody who knows somebody who knows somebody. And when you do, you have the ability to effectuate change for your benefit.” One comment from the audience resonated loudly with the guests in attendance. Harry Mohney, founder of the Deja Vu club chain and one of the industry’s most revered figures, offered this suggestion:“We’re still acting more reactive than proactive. Proactive is when you control the legislature, not react to the legislature. Why not control the legislature by creating voters. We’re the most powerful people in the world. We have money. We create jobs. We influence millions of people every week who come into our clubs, who work in our clubs. Don’t you see that elections are sometimes won or lost by a few hundred votes? Especially local elections. We create signage supporting certain individuals, the certain legislation we’re interested in. It all depends on how we present ourselves. This candidate protects religious freedom, the First Amendment, etc. It can’t be about protecting your own rights, you support protecting everyone’s rights. How many of you can call the mayor in your town right now, city councilman? We have influence, we can register voters. These politicians will kiss your ass for these votes. If you don’t come out of your hole and fight, you’ll be buried in your own hole. Join your associations, get involved.